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Here is our situation. We own our home outright. Appraised at 382K last summer when we bought it. The reason we are able to own our home right now is that we were extremely fortunate and my parents bought the house for us outright with cash. They are extremely well off, and I have never asked my parents for any money, so they did this for us. Since I was 18 I have never asked or taken any money from my parents, worked hard through college and grad school to fund my own education, so that I graduated debt free. However, my wife has about $145k in student loans (mainly due to graduate school), at 4.85% currently. Min payment is about $900/month; my wife has actually been paying down approx $3k per month. Last year, she paid about $8k in interest on the student loans.

Currently, we are living quite comfortably. Our combined gross annual income is right about 300k. We are both maxing out our 403bs and 457s (instead of 401k because we work for the same government institution). We have about 120k saved in our liquid emergency fund. Our jobs are both quite stable (like I said, we both work for the same government institution), and we could easily just pay the minimum on her loan and forgot about it for the next 20 years or however long it takes to pay it off. However, like I mentioned, I was always careful with money and even though I have a well paying job now, I still try to maximize rewards/minimize interest payments. Iím lucky that my familyís wealth did not make me a spoiled brat, unlike some of my cousins.

My question is, should we take out a home equity loan to pay for the student loans? If we borrow about 140K, and repay over 5 years or 10 years, Iím guessing I can get a rate between 2.5 to 3%. That would make our monthly payment in the $2500 range for the 5 year option and $1500 for the ten year option. Remember, my wife has been paying down about 3k a month anyways.

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Its called PSLF. The debt is forgiven after 10 yrs worth of payments.

It won't really play for you because your income i... (more)

jd2010 (Feb. 14, 2013 @ 9:07p) |

Govt lawyers ... That's why they can't do math
Honestly making 300k you're looking at 1-2 years to pay that loan off. I... (more)

motuwallet (Feb. 14, 2013 @ 9:32p) |

It's not a gift when it's to your wife.

raringvt (Feb. 15, 2013 @ 12:10p) |

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If your house is paid off and your jobs are as stable as you say they are, why do you need 120k in your emergency fund? Seems like overkill.

Why not put at least half of your emergency fund towards the loans for starters?

First world problems. If you are not both firefighters, then to make that kind of money at a gov't job, you're probably PhD's. Do the calculation as to what will save you the most money factoring in interest, opportunity cost, and taxes, then do what your calculations tell you.

RedCelicaGT said:   First world problems. If you are not both firefighters, then to make that kind of money at a gov't job, you're probably PhD's. Do the calculation as to what will save you the most money factoring in interest, opportunity cost, and taxes, then do what your calculations tell you.

isn't this entire forum about 'first world problems'?

If you make $300k and have no house payment, how do you only have $120k in the bank? Seriously, with that kind of income and no other debt, even in the highest cost area, you should be able to knock out that student loan debt in no time.

Q: My parents gave me a $300k house so that I'd never have to worry about house payments. Should I take a cash-out mortgage on my gift house?

A: Depends on how much you want to piss off your parents.

dcwilbur said:   If you make $300k and have no house payment, how do you only have $120k in the bank? Seriously, with that kind of income and no other debt, even in the highest cost area, you should be able to knock out that student loan debt in no time.

We have each been at our jobs a bit under a year. I think 120k is actually pretty good for that time. Like I said, wife is already paying down 3k/month on the loan, with min payment is $900/month. My question was whether to take out the loan so that we're minimizing the interest we are paying. We don't have any issue with saving money here folks. That's not my question.

dcwilbur said:   If you make $300k and have no house payment, how do you only have $120k in the bank? Seriously, with that kind of income and no other debt, even in the highest cost area, you should be able to knock out that student loan debt in no time.

erutio said:   Our combined gross annual income is right about 300k. We are both maxing out our 403bs and 457s

$300k - $70k (403b & 457 max x 2) - SS & Medicare - Fed & State Taxes = not nearly as much as $300k sounds like.

I would not take out home equity. If I am as a parent bought my child a house (how it is titled btw? your name only?) and he turns around to take equity out to pay spouses debt - I would be really upset. Do not use your parents' gift to pay someone else's debt.

Take 100k out of your emergency fund (I assume that one is put together not by your parents, right?) and pay it down, rest should be piece of cake if spouse can continue to send 3k/month there.

OP, if it were me I would put the entire $120k towards the student loans & pay off the remainder ASAP. Should an emergency arise, you could tap a HELOC at a reasonable rate. If no emergency arises, build your emergency fund back up. Why pay even 2.5-3% interest to keep cash rotting in the bank at near 0%?

Throw $100K of the emergency fund or more at the $140K.
At $3k/ month, the remaining $40K will be paid off in a little over a year (Do the math to see if a HELOC will make a significant difference)

Then rebuild the emergency fund at $3k/ month

MoneyOCD said:   I would not take out home equity. If I am as a parent bought my child a house (how it is titled btw? your name only?) and he turns around to take equity out to pay spouses debt - I would be really upset. Do not use your parents' gift to pay someone else's debt.

Take 100k out of your emergency fund (I assume that one is put together not by your parents, right?) and pay it down, rest should be piece of cake if spouse can continue to send 3k/month there.


It is actually titled with both of our names. But this is something I haven't even brought up to my parents, so you are right about not upsetting them. They are fully aware of her debt though.

Presumably your parents are (or at least have stayed) well-off because they're good with money. Why would they be upset if you if you took out $140k for the no closing cost 5 year PenFed HEL at 1.99% of partially tax-deductible interest and used that to pay off $140k at 4.85% of completely non-tax-deductible interest?

ellory said:   Throw $100K of the emergency fund or more at the $140K.
At $3k/ month, the remaining $40K will be paid off in a little over a year (Do the math to see if a HELOC will make a significant difference)

Then rebuild the emergency fund at $3k/ month

Do this

Don't mortgage up the house they gave you

Yes.

Refi the house for 15 years at 2.75% (or lower), and make sure that there is no prepayment penalties.

Leave the emergency fund where it is as this is not an emergency.

I don't see why your parents would be upset. If anything, you're being smarter about your money.

erutio said:   isn't this entire forum about 'first world problems'?

FWF = first world finance

In addition to discussing trust arrangements, a good estate planner might have advised your parents, "Most marriages end in divorce. In the event that your son's marriage last only X number of years, would you want any restrictions placed on your daughter-in-laws rights to the property, including joint ownership with future spouses or transfer to heirs? (It may sound harsh to mention it on Valentines Day, but are you aware of any trust arrangements or strings tied to the title?)

When your Parents gets older and grumpier, do you really want your wife to have to hear nagging about how much she is obligated to them for paying off her student loans?

Do you want to put your wife in the position of feeling obligated to your parents (or worse, yourself)? I know I'd have a lurking feeling of guilt if I were the recipient of that type of largesse.

Doesn't seem worth risking damaging relationships to save a few thousand dollars in interest.

How is it possible you are just 1 year into your Federal jobs and you make $300K per year combined?. The government pay scale at the very top of the GS-15 civil service is $155K in Washington, DC.

Are you both congressmen, or something. They make $174,000.

revheck said:   How is it possible you are just 1 year into your Federal jobs and you make $300K per year combined?. The government pay scale at the very top of the GS-15 civil service is $155K in Washington, DC.

Are you both congressmen, or something. They make $174,000.


They are either doctors or some other type of medical or scientific professional. But who cares? It is not relevant to the conversation.

I know we all want to be debt free..
but since you both are working for government? what about the 10Years loan forgiveness?

steve1jr said:   When your Parents gets older and grumpier, do you really want your wife to have to hear nagging about how much she is obligated to them for paying off her student loans?

Do you want to put your wife in the position of feeling obligated to your parents (or worse, yourself)? I know I'd have a lurking feeling of guilt if I were the recipient of that type of largesse.

Doesn't seem worth risking damaging relationships to save a few thousand dollars in interest.


When my parents gave us the gift, they truly intended it to be a gift and don't expect anything in return at all. This is the first time they have helped me out financially since I moved out at 18 for college, even though they have offered plenty in the past and I have always politely declined. I've always just preferred to earn everything myself.
As for my wife's student loan debt, I was fully aware of this before our marriage, and my parents are actually aware as well. I dont think paying off the debt would harm the relationship with my parents at all. In fact, when they 'gifted' us the house, they didn't actually buy the house and title it in our name. Instead, they actually gave us the lump sum in cash, and said "Here, go find a nice house with this money". I even told them I didn't need so much for the house, but they insisted. We still didn't end up spending the whole amount they gave us. I used the remainder to buy a car for myself (my wife and I were sharing one car before, I was taking public transportation).

I would qualify for the HELOC NOW while you have $120k in the bank. May cost you ~$500 to apply, but you likely have a good credit union available through your jobs.

Then MAYBE pay off much of the student loans from emergency fund. Available HELOC then becomes your emergency-emergency fund.

Possible alternative--can you take a loan against your retirement funds? You can against 401k's. Then you're paying the interest to yourself, and it isn't taxable till you retire and withdraw it. Just a possible alternative I haven't seen mentioned.

jojosung said:   I know we all want to be debt free..
but since you both are working for government? what about the 10Years loan forgiveness?

Can you explain the 10 yr loan forgiveness program?

erutio said:   jojosung said:   I know we all want to be debt free..
but since you both are working for government? what about the 10Years loan forgiveness?

Can you explain the 10 yr loan forgiveness program?


Its called PSLF. The debt is forgiven after 10 yrs worth of payments.

It won't really play for you because your income is so high that after 10 years itll basically be paid off.

To get on IBR she would have to file separately. Her min payment would then be roughly 10% of AGI/year. After 10 years, the balance is forgiven.

Govt lawyers ... That's why they can't do math
Honestly making 300k you're looking at 1-2 years to pay that loan off. It's probably not worth the hassle

Quick derial question for the tax pros of FWF ... Would OP be exposed to gift tax in this situation and would paying off the loan directly been a way to avoid this? Not really relevant to me just a question of academic interest as I'm a tax mitigation hobbyist

It's not a gift when it's to your wife.



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